Binary options are rooted in the fact that it does not require a high experience in the field to be able to make successful trades. The popularity of binary options resides in its simplicity of use.
Understanding binary options strategy
Traders only need to decide whether the value of an asset will increase or decrease to opt between Call, in anticipation for a rise in value and a Put, which alternatively signify that the value of the asset will fall. However, Binary options require a good planning so that traders are able to understand the market in view of having more control on their trades.
Trading randomly will lead to nowhere and can be very perilous. Traders are advised to have a proper grasp of the market before they place trade. This is where a good strategy comes in place. Trades should not be placed just for the sake of placing a trade but with the thought in mind that the trade will be successful. Traders of varying experience use different strategies, these strategies are adopted to the objective of the trader. Strategies help to plan and to stick to a course of event which the trader believes will be beneficial. While going through this article, we have listed some of the main types of strategies which are the most popular among traders.
How & when to use binary options strategy?
During the course of time, traders have devised numerous strategies to give them an edge over their trades. Traders nowadays are able to have access to a multitude amount of trading tools. These strategies have been crafted bearing in mind that traders have different levels of skills which need to be adapted to the right binary options strategy. Depending on the nature of the strategy which has been chosen, some of them can be used at the offset, others at different points in the trading operation. Basically, binary options strategy gives an indication on what to invest in, how to invest, when to invest to maximise the trading opportunity. Traders being equipped with strategies have more chance to succeed at their trade.
What are the types of binary options strategies?
Binary options strategies exist in numerous forms. However, not all of them are right for all context. Depending on the context that the trader face and the type of information which are available at the moment of decision, the right type of strategies can be chosen. A list of the various types of strategies have been listed below :
Trend Line strategy
The trend line strategy is one of the most basic strategies which is used by both beginners and advanced traders. Though simplistic in nature, the trend line strategy gives valuable information to its traders. This type of strategy is also known as the bull-bear strategy by some traders. The main emphasis of this strategy is the monitoring of the rise and fall of the value of an asset through a trend line on the chart depicting the value movement of the asset. If the trend of the asset shows that its value is going to rise then place a call trade, if the trend line shows a downward trend then place a put trade.
The Pinocchio Strategy is also known as the “Pin Bar” strategy. When the Pinocchio wick gets longer, it actually implies that it is lying to us. Traders should place a Call when the long wick is down and place a Put when it goes up. The Pinocchio strategy demands some form of experience but the results have been proved to be very accurate. This type of strategy is mostly used when there is a high probability that the price movement of an asset will make a drastic rise or fall in the opposite direction.
The straddle strategy is very popular in the trading community. This strategy is used during high volatility of the market or before major announcement relating to specific assets, news which have the ability to drastically affect the value of the asset. This strategy involves the trader using both a Call and a Put trade on the selected asset. The concept revolves around using the Put option when the value of the asset have risen while there are strong indication that the value of the asset will fall. When the declines happen place a Call option while anticipating the asset to rise again soon. Alternatively, this can be carried out in the other direction as well.
Risk Reversal Strategy
The Risk Reversal focus on considerable lowering the risk of losing consequent amount of money on risky trades while increasing the probability of making a successful trade. This strategy entails placing both a call and a put option on an underlying asset at the same time. Binary Options have two possible outcome either the trade is in the money or out the money, with this strategy the trader is sure to be in the money in at least one occasion. Traders usually invest marginally more in either one of the options to make sure to increase the possibility of a profit by choosing both options.
The hedging strategy is also known as Pairing, this type of strategy is used by traders of all walks, ranging from investors to stock exchanges so as to decrease the risk associated with the trade. Traders choosing this type of strategy seek to protect themselves against making high losses. The hedging strategy entails placing both a Call and a Put option on an underlying asset at the same time. Whatever the direction which your trade takes, the trader does not incur heavy losses.
Fundamental Analysis Strategy
The Fundamental Analysis strategy requires the trader to have a good grasp of economical parameters. Though highly effective, many traders find it challenging to use the Fundamental Analysis Strategy. It actually involves an analysis the overall performance of the company. For example, traders opt for information such as the balance sheet, income statement, cash flow statement before actually buying an option. In other words, the trader needs to take into consideration the health of the company, in some cases traders analyse the whole industry to get a broader insight.
The Technical Analysis strategy pertains to the study of past data in view to replicate them in current market conditions. Traders believe that certain context tends to replicate hence seize the occasion to make a profit out of it. Factors which are usually considered are charts of price, volume, open interest or market trends which help to establish a possible trend. This type of strategy relies on the fact that market psychology has a direct influence on trading in such a way that it enables the prediction on whether the price of an asset will rise or fall. Technical Analysis can be as its name suggest technical in nature, requiring a good understanding of the various parameters which can affect the value of the value of an asset.
The bottom line
While we have tried to depict as many strategies as possible, there are some traders who after a good experience in the binary options field have devised their own strategy which even if not well known provides good results. It does not mean that if the strategy you use is not on the list that it is not good altogether, a bit of flair is also needed and flair is not something which is developed overnight but after a deep understanding of the mechanism of the industry.